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3EP0H!I?   Oil   yJKIi  ^liLLfOIiJ.  aOxIDX^IOil 
OF      TH?2 

LA  SQOIiilDiiJD  m  ^liilGO  Y  TKHRiillOS  DE  LA  BAJA  GALIIPOMIA,    S.   A, 

On  IoYem"ber  1,  1906 


tiflr. 


REPORT   ON  THE  PIITMOIAL   GOiTDITION 
OP     THE 
CALIPORUIA  DS7SL0Pi^.lTT   GOMPAIJY  AilD  ITS   SUBSIDIARY  COMPAHY, 
I.A  SOGIEDAD  DE   RIEGO  Y  TERREiTOS  DE  LA  BAJA  GALIPORIJIA.    S.    A. 

On  Hovember  1,   1906 
By     H.    T.    GORY 


REPOHT  ON  TKI?  FIKAHCIAL  CQNDITICN  OF  THE 
CALIFORNIA  DEVELOPMafT   COMPANY,   AND   ITS 
SUBSIDIARY  COMPANY  LA  SOCIH)AD  DB  RIEGO 
Y  TERREICOS  DB  LA  BAJA  CALIFORNIA,   S.   A. 
Oil  NOV.    1st,   1906  BY  H.   T.   CORY. 


The  following  Report  has  been  prepared  for  the  puxpose  of 

showing  the  present  financial  condition  of  the  Califomia  Develop- 
ment Company  together  with  its  probatle  future  resources  and  liabili- 
tiod.     Of  the  many  factors  viilch  are  to  be  taken  into  consideration 
but  fevv  are  definitely  detomined,  while  no  small  number  axe  entirely 
matters  of  prophesy,   so  that  the  explanation  as  to  the  bases  upon 
which  the  results  set  forth  were  arrived  at  should  be  carefully  con- 
sidered to  avoid  serious  misconception  of  the  true  situation. 

With  this  explanation  the  follosving  summary  is  given: 


1. 

Actual  Assets 

#1,275,705.67 

2. 

Actual  Liabilities 

3,170,078.00 

3. 

Advisable  Construction  and 

He-construct  ion 

1,120,000.00 

4. 

Marketable  Securities  I!ade 

Available 

by  AdvisabI 

.e  Extensions 

2,750,000.00 

5. 

Probable  Yearly  Cost  of  Operation  and 

::aintenanc€ 

>  of  •'"^rapleted  System 

216,250.00 

6. 

Income 

305,200.00 

7. 

Gross  Profit  Available   for 

Fixed  Charges 

and  Dividends  on  Stock 

[ 

88,950.00 

1. 

ASSETS. 

A. 

Buildings  and  Grounds, 

1     6.500.00 

^. 

Real 

Estate- 

1. 

Scrip  Land  1342.2')  acres 

13,422. 

2. 

Kan  Ion  Purchase 

1,000. 

3. 

r-7exlcan  I.,andB,  G0<  000 

ac. 

80.000. 

94,422.00 

C. 

Canals- 

1. 

Concrete  Headgate 

77,000. 

2. 

Canals  in  U.  S. 

15,000. 

3, 

Canals  in  Mexico 

600.000. 

692,000.00 

D* 

Equipment  and  supplies- 

1. 

Dredger  Ko.   1 

12,000. 

2. 

"           '•       2 

2,500. 

3. 

"           "3 

10,000 

4. 

"Delta" 

80,000. 

5. 

Steamer  "Searchli^t" 

8,000. 

6. 

Other  r.'achinery 

7,000. 

7. 

Corral 

2,700. 

8. 

Bnginr. Instrs.   &  Rods 

5,000. 

9. 

Telephone  Line 

2,700. 

10. 

Camp  Equipment 

2,500. 

11. 

Furniture 

2,000. 

12. 

Tools  and  Implements 

4,500. 

13 

Llaterials  &  Supplies 
5.18184 

-H 

22,873 

161,773.00 

Negotiable  Paper  - 

1.  Notes  and  i!ort gages 

2.  Interest  on  same-Nov,  let 

3.  Bills  Receivable 

4.  Int.  on  sar.e  to  Hov.  1 

5.  2701  shares  CDCo 

6.  626  shares   ILCo. 

7.  C.D.Co.   Bonds,  ^^160.00 

8.  Other  Stock 


161,693. 

7,522. 

2,996. 

165. 

? 

31,300. 

60. 

100. 


$203,856.00 


F.   Overdue  '''ater  Rentals-Nov.   1.- 
1.    I. '.Co.  No.   1 


2. 

..     4 

3. 

"     6 

4. 

"     7 

5.    C.I.!.  Co. 

6.  Mexican 

Colonists 

24,300. 

1,950. 
25,000. 

3,000. 

1,527. 

5.000. 


6.  Cash 

H.   Personal  Accounts 


60,777.00 

38,377.67. 

18.000.00 

1,275,705.67 


In  compiling  the  assets  the  figures  which  stand  upon 
the  company's  books  have  not  been  taken,  tut  the  various  items 
have  been  determined  in  various  ways  and  j^^pear  in  the  detail 
explanations  following: 

A.     Buildings  and  Grounds.       These  cons  3st  of  office 
buildings,  warehouses,   stables  and  corrals  at  Calexico,  Kexi- 
cala  and  the  Cement  Heading.     At   Calexico   and  :  exicali  the  cutting 
bac:^  of  Hew  River  has  necessitated  a  line  change  of  the  Inter- 
California  Railroad,   and  the  new  const ructi en  passes  through  the 
grounds  of  the  California  Development   Company's  general  offices 
materially  reducing  their  value,   rendering  the  office  buildings 
very  much  less  desirable  and  necessitating  moving  the  stables  and 
corral  to  real   estate  v^ioh  must  be  purchased. 

The  lot   on  Tuiiich  the  l!exican  buildings  in  I'exicali  stood 
was  washed  w^ay  and   lots  must  be  rurchased  on  which  to  place  the 
structures  vi^ich  were  saved. 

The  adobe  building  at  the  Qement  Heading  will  be  wrecked 
as  the  Inter-Califomia  Railroad  passes  directly  through  the  East 
side  of  it.     The  total  present  value  of  all  buildings  and  grounds 
belonging  to  both  companies,   therefore,   amounts  to  $6,500.00. 

^'     Real  Estate:     The  present  holdings  of  Scrip  Land  is 
1,342»25  acres,  -which  will  probably  be  disposed  of  within  the  next 
two  years  at  an  average  price  of  $10.00  per  acre. 

The  320  acres  of  land  at  the     Cement  Heading  which  was 
bou^t  of  Hall  Hanlon  for  $26,000.00,  because  of  it  being  Impossible 
to  condemn  right  of  way,   for  irrigating  purposes,  has  little  value 
except  for  strategic  purposes.     The  roqi^.  r^iarry  and  Clay  Pit 

-2- 


developed  for  the  work  of  dosing  the  break  in  the  Colorado  River 
bank  lie  outside  of  this  land  so  that   its  diief  value  is   in  the 
possibility  of  a  town  sito  on  the  International  Boundary  Line 
where  the  latter  is   crossed  by  the  Inter-California  Railway,   and 
is  taken  at  |1,0C0.00. 

The  Mexican  Company  still  0T;7n8  80,000  acres  of  land  in 
Mexico  which  is   taken  at  .fl.COper  acre.       Of  course  when  water  is 
delivered  to  these  lands  for  irrigation  the  price  of  land  with  the 
right  to  buy  water  will  be  from  C'lS.OO  to  (20,00 »  but  the  differ- 
ence is  considered  under  the  headinp  of  "r.'arketable  Securities 
made  Available  by  Advisable  Extensions". 

C,   CanaliS.       The  (*oncrete  Heading  at  Algodones  cost 
^77,000.00,  and  its  value  is  taken  at   its  cost. 

It   is   impossible  from   the  books  of  the  company  to  deter- 
mine the  construction  cost  of  the  canals   in  the  United  States,   as 
maintenance  expenses  and  other  items  were  charged  against  them. 
However,    it  probably  was  in  the  vicinity  of  $250,000.00.      All  of 
those  lying  East  of  the  Alamo  rivor  in  the  Valley  are  in  such 
state  that  it  is  highly  advisable  to  entirely  abandon  than,  and 
sarce  is  true  of  those  lying  west  of  the  New  River.       The  canal 
bet'.veen  the  Alamo  river  and  Kew  River  is  in  fair  condition,  but   it 
has  not  been  taken  into  account  as  an  asset  for  the  reason  that 
it  is  practically  necessary  to  turn  all  of  it   over  to  Imperial 
'"ater  Go.  Ho.   1  in  a  general  settlonent  of  their  existing  contract 
with  the  California  Development   Company  for  the  completion  of 
its   irrigat  Ion  system.      Incidentally  it  should  be  noted  that  a 
considerable  bonus  must  be  given  to   Imperial  v;ater  Co.  Ko.   1 
to  take  over  the  I'ain  canal,   so  that  at  present  it   is   really  a 
liability  rather  than  an  asset,   but  this   is  taken  into  account 
in  the  item  "Completion  of  I.    ".   Co.  Ko.   1  System".     The   canal 
from  the  Concrete  Heading  to  the  river  cost  about  |i26,000.00, 
but  could  be  constructed  with  a  clam-shall  dredge   for  less  than 
$5,000.00.     It  seems  probable  at  this   time  that  this  canal  will 
cut  out  so  satisfactorily  that  no  further  work  will  be  required  up- 
on it,   leaving  a  cansil  which  would  cost  about  (15,000.00  to  dig 
with  the  clam-shell  dredge,   and  its  value  has  therefora  been  taken 
at  $15,000.00. 

The  canals  in  i:oxico  consist  of  a  fev;  miles  of  laterals 
which  v/ere  not  damaged  or  destroyed  during  the  recent  flood,  and 
the  Alamo  river  from  the  Lower  Heading  to  Sharp's.     This  later  was 
cut  out  to  a  fairly  uniform  grade  by  the  flood  and  has  been  taken 
to  be  worth  the  cost  of  digging  a  canal  capable  of  carrying  the 
maximum  amount  which  will  ever  te  needed  in  the  Imperial  Valley, 
less  the  amount  of  money  it   Is   advisable  to  spend  upon  it  to  give 
it  that  capacity.     On   this  basis  it  is  worth  |600,000,0C. 

D.      Etauipment  and  SuTxplies.       The  first  seven  items  are 
taken  at  their  present  value.     The  engineering  instruments  are 
worth  about  ^1,000.00,  and  the  records  havo  been  assigned  a  value 
of  ^4,000.00.     Such  records,  profiles,  maps,  etc.,   of  course  cost 
a  very  much  larger  sum,  but  the  topography  of  a  great  deal  of  the 
country  has  entirely  changed  making  practically  all  of  the  data 
regarding  it  valueless,   and  the  majority  of  the  records  covering 
the  completed  work,   together  with  insufficient  data  about  practi- 
cally everything  v*,ich  needs  to  be  done  makes  the  real  value  of 
the  records  quite  low.       The  other  items  are  taken  at  their  present 
value. 

-3- 


i.  negotiable  Paper.     All  of  the  items  are  given  at  their 
face  value  with  the  exception  of  shares  of  the  Imperial  Land  Company 
stock  which  are  taken  at  fifty  cents  on  the  dollar,   and  the  California 
Development   Company  bonds  which  \7qtq  also  taken  at  that   figure,      ith 
these  exceptions  all  of  the  paper  is  believed  to  be  thoroughly  good 
provided  the  tenns  of  the  contracts  with  the  various  Liutual  'Vater 
Companies  aro  carried  out. 

F.   Overdue  'ater  rentals.   All  of  these  are  thoroughly  good 
with  the  exception  of  the  third,  the  amount  due  from  Imperial  "ater 
Compaiiy  Ko.  5,  which  is  probamatical.         This  Water  Company 
owes  about  ^'^51,000.00  water  rentals,  but  a  law  suit   is  now  pending  and 
it  is  known  that  several  counter-claims  will  be  made  by  this  Company 
which  will  reduce  the  total  amount  which  can  be  probably  collected 
to  the  sum  given. 

G»     Cash.       This   item  is  the  Bank  balance  at  the  close  of 
business  October  31st,   1906. 

H.  Personal  Accounts.  This  item  is  made  up  of  several 
entires  amounting  to  ^22,742.68,  having  a  present  value  of  about 
#18,000.00  80  far  as  can  be  ascertained. 

2.      LIABILITIES. 

A.     Outstanding  Bonds  —  #477,920.00  $286,752.00 

B. 

♦20,000. 

11,565. 

900,000. 

35,206. 

Bonds.       22.439.        989,210.00 

C. 

106,751. 
325,000. 
12.500.        444,251.00 

50,000. 
1,000,000. 

300.000.      1,350,000.00 

E.  Unpaid  Pay-rolls  10,770.00 

F.  Personal  Accounts  39,095.00 

G.  Completion  Ilo.   l*s  System  50,000.00 
H.  Guarantee  Bonds  of  Ro.  8                                                         ? 

$  3,170,078.00 

A.  Outstanding  Bonds.     The  bonds  of  the  company  which 
have  been   issued  are  of  a  face  value  of  #477, 920. 00.       The  amount 
of  money  it  will  take  to  call  in  all  of  the  issue  depends  entirely 
upon  the  disposition  made  of  the  company  itself,  but  it  seems  that 
they  could  be  retired  on  a  basis  of  sixty  cents  on  the  dollar,  and 
they  are  taken  therefor  to  represent  an  actual  liability  of  $286,752.00. 

B.  Bills   Payable.       The  first  and  second  items  are  notes 
vfhich  are  now  due.       The  third  item  consists  of  fourteen  notes 
aggregating  §900,000.00,  bearing  date  and  payable  as  follows: 


D. 


Bills 

Payable  - 

1. 

J.  M,  Smith 

2. 

A.  H.  Heber 

3. 

S.  P.  Co. 

4. 

Interest  Nov.  1  - 

5. 

Deferred  Int.  on 

Accounts  Payable - 

1. 

llerchants 

2. 

S.  P.  Go. 

3. 

Individual 

Damages- 

1. 

Salt  works 

2. 

S.  P,  CO. 

3. 

All  Others 

Date.  Dae  Amount 


July  22- 

1905 

(1) 

Map. 

1,   1907 

$20,000.00 

•f 

(2) 

Mar. 

1,   1908 

30,000.00 

«t 

(3) 

liar. 

1,   1909 

40,000.00 

n 

(4) 

Map. 

1,   1910 

50,000.00 

If 

(5) 

Mar. 

1,  1911 

10,000.00 

Sept. 22, 

1905 

March  1,   1911. 

50,000.00 

Kov.  22, 

1905 

Demazid 

150,000.00 

Fel).   12, 

1906 

75,000,00 

I.!ar.   16, 

1906 

75,000.00 

I^ay     11, 

1906 

50,000.00 

J-une  26, 

1906 

100,000.00 

Aug.     7, 

1906 

100,000.00 

Sept, 19, 

1906 

100,000.00 

Oct.  20, 

1906 

1 

ft 
Total  — 

100.000.00 
$     900,000.00 

The  fourth  Item  is  the  total  a-^-iouiit  of  interest  due  on  all  of  the 
outstanding  notes  up  tc;  November  1,  1906.     The  fifth  item  is  deferred 
interest  on  the  outstanding  "bonds  of  the  company  v^^ich  it  is  assumed 
must  he  paid  although  such  payment  could  possihly  avoided. 

c.     ACGOUirrs  payable.  The  total  amount  of  money  due 

merchants  and  ST:5)ply  houses  is  $106,751.00for  material  furnished  or 
work  done. 

The  amount  due  the  Southern  Pacific  Company  is  for  material 
famished,  for  work  dene,  and  for  frei^t,  chiefly  on  shipments  of  rock 
durfcig  the  progress  of  the  v/crk  at  the  Lower  Heading. 

The  individual  accounts  include  such  items  as  $1,000.00  dae  to 
Sr.  Sepulveda,  $2,000.00  to  the  Estate  of  Senor  Velasco,  the  probable 
amount  of  settlement  with  Attorney  Ileserve,  etc. 

^«       Damafres.       Suit  has  been  entered  by  the  Salt  on  Salt 
Company  for  $200,000.00,  but  it  is  heli^red  a  settlement  can  be  effected 
for  $50,000.00  and  that  is  the  amount  taken. 

The  damage  to  the  Southern  Pacific  Oompary  is  estimated  and  may 
be  considerable  in  error,  as   I  have  very  little  data  to  use  as  '\  basis. 

Other  damagen  for  loss  of  land  and  crops  undoubtedly     a^e  great, 
but  nothing  but  a  conjecture  can  bo  made  at  this  time  as  to  the  actual 
amount  v^ich  wnuld  be  required  to  settle  them. 

E,  l^-roll  Unpaid.     This  is  the  amount   of  unpaid  payroll 
up  to  Kov  ember  1,  1906. 

F.  Personal  Accounts.     This  item  consists  of  moneys  payable 
to  various  individuals,   about  forty  per  cent  being  payable  in  excess 
water  arranged  in  settlement  for  damages,  and  about   forty-five  per  cent 
in  unpaid  salaries  of  officers  and  employees  of  the  company. 

0.     Completion  of  Ko.  l*s  System.         The  California  Development 
Company  is  under  contract  to  build  a  complete  distributing  system  for 
Imperial     v/ater  Conipany  No.  1,  and  it  is  impossible  to  deteimine  how 
much  will  still  be  required  to  comply  with  this  contract.     It  will 
probably  be  more  than  $50,000.00,  but  it   is  believed  an  arrangement  may 
be  made  with  Imperial  7.'ator  Company  llo.   1  to  take  over  the  main  canal 
system  runninc  between  the  /ilamo  and  New  River  and  North  of  the 
International  Boundary  Line,  and  cancel  the  existing  contract  for  the 
completion  of  tlie  system  for  that  amount   in  spot  cash,  so  that   it  is 
entered  here  as  a  Itimp  sum  and  avoids  the  necessity  of  taking  note  of  the 
main  canal  as  a  liability  by  itself. 

-5- 


H.     Guaranteed  Bonds  of  No.  8.     The  California  Development 
Company  guaranteed      $109,600.00  worth  of  bonds  issued  by  Imperial 
"ater  Company  No.   9,  but   I  have  Just  arranged  a  settlement  with  the 
Board  of  Directors  of  that   company,  which  will,   in  effect,   relieve  the 
California  Development  Company  of  this  liability  and  althou^  the 
contracts  will  not  be  signed  for  a  few  days,   I  feel  quite  sure  there  will 
be  no  further  hitch  in  the  negotiations. 

3.      ADVISABLE  COHSTnuariCK  MD  RE-COKSTRUCTIOK. 

A.  Completion  of  '.'ork  at   Intake  125,000.00 

B.  Re-Construction  and   Jiixtraordinary 
Maintenance  of  Existing  System — 

1.  Canals  in  Ilex  ice  l-EBO.OOO. 

2.  Canals   in  U.   S.  45.000.        295,000.00 

C.  Extensions — 

1.  In  liexlco  435,000. 

2.  In  U.    S.  225.000.        660,000.00 

D.  Real  Estate  and  Buildings  25,000.00 

£•     Miscellaneous  —Live  Stock,Pumiture,etc.     15.000.00        $1,120,000.00 

A.  Completion  of  Vork  at  Lower  Heading.     On  November  first, 
the  closing  was  not  entirely  made  and  there  were  ajproxiraately  400,000 
yards  of  material  to  put  in  place  and  el^t  and  a  half  miles  of  track  to 
lay  upon  the  top  of  the  levees.     The  completion  of  all  vo  rk  at  present 
contemplated  on  the  river  on  the  first  of  Novffnber  would  cost     $125,000.00. 

B.  Re-  Construction  and  Extraordinary  !.Iaintenance  of 
Existing  System.       It  will  cost  about  #200,000.00  to  improve  the  Alamo 
river  bed  in  L'exico  between   tlie  Lower  Reading  and  Sharp's,  and  about 
1-50,000.00  to  dig  a  new  canal  at  the  foot  of  the  ?/lesa  from  the  Concrete 
Heading  to  a  point  opposite  the  Lower  Heading. 

It  will  be  necessaiy  to  build  a  canal   in  the  United  States 
from  near  Holtville  about   fourteen  miles  long  to  Brawley  for  the  purpose 
of  supplying  Imperial  'Vater  Company  No.  4,  and  providing  for  the  use  of 
the  waste  water  from  the  Holton  Power  Company.     This  canal  will  ooet  about 
v45,000.00. 

C.  Ertensions.     A  complete  irrigation  system  for  the  lands 
owned  by  the  Mexican   Company  and  a  ma 3n  canal  throu^  Mexico,  turning 
back  throu{^  the  United  f-tates  for  the  purpose  of  cariying  water  to  the 
area  ^.'est  of  New  River  must  be   completed.     This  latter  canal  will  be 
about  thirty  miles  long,   but  arrangements   can  doubtless  be  made  with  the 
r'exican   c:attle   Company  —  the  Times  Syndicate  —  to  join  in  this  wo* 
and  the  total  cost  of  these  canals  to  the  Calif omia  Development   Company 
and  the  ?-:exican  Company  will  be    $435,000.00  including  the  very  expensive 
and  elaborate  structures  which  will  bo  required  for  the  headings  of  all 
of  the  main  canals  leading  into  the  United  States  at  a  point  about  five 

miles  east  of  Sharp's. 

In  addition  to  these  improvement  It  may  become  advisable  for 
legal  reascms  to  put   in  a  permanent  hoadgate  in  Llexioan  terrltoiy  Just 
belav  the  Cemant  Heading.     Such  a  stincture  would  cost  about  $150,000.00, 
but  as  it  does  not  seom  a  necessity  at  this  time  it  has  not  been  taken 
into  consideration. 

In  the  United  States  about  thirty  miles  of  main  canals  must 
be  built  for  the  territory  east  of  the  Alamo  and  eighteen  miles  for  the 
territory  west  of  New  River,   costing  in  all  about  (i225,000.00. 

-6- 


^«     Real  Estate  and  Buildto^s,       Calexico  is  so  small  a  place 
and  climatic  ccnditions  so  disagreeable  that   it  will  bo  necessary  to 
build  several   cottages  to  b  ■  rented  at  a  moderate  price  to  officers 
and  employees  of  the  flompany,   in  order  to  hold  good  men  of  family. 
These  together  with  satisfactoiy  office  buildings,   corrals,  etc.  would 
require  $25,000.00. 

S.     I.!iscellaneous.     The  chief  Items  imder  this  heading  will  be 
colonization  expenses  to  the  I-e:^ican  Company  especially;     and  new  live 
stock  and  buggies    for  the  use  of  the  engineering  department  in  the 
construction  work  which  will  doubtless  be  begun  at  once. 


4.     ilARKETABLI^:  SECURITISS 
i'iADE  AVAIL/vBLE  BT  ADVISABLE  E>:TS>:S10KS. 

A,  Land-50,000  acres   in  Mexico  $750,000.00 

B.  Water  Stock-  100,000  acres  in  U.S.  2,000,000.00       $2,750,000.00 

The  assets  and  liabilities  given  above  are  those  which  are 
practically  immediate  ones  and  the  Advisable  Construction  and  Re- 
construction work  should  la  rushed  to  completion  v;ith  all  possible  speed. 
The  Marketable  Securities  which  will  "^^  made  available  can  be  disposed 
of  relatively  soon.     The  rate  of  development  of  the  Valley  in  the  past  is 
no  criterion  to  use  for  that  which  is  to  be  expected  in  the  future  because 
the  extraordinary  and  vital   interruptions  which  have  been  experienced. 
People  had  Just  commenced  to  come  into  the  Valley  in  large  numbers  when 
a  very  unfavorable  soil  report  by  a  Government  Expert  threv/  a  serious 
damper  upon  the  entire  enterprise  and  by  the  time  that  was  gotten  rid  of 
a  water  shortage  ensued,   followed  later  by  an  agitation  for  Government 
Osmership  through  tho  medium  of  the  Reclamation     Service,  and  a  little 
later  c^ime  the  raenanco  due  to  the  break  in  the  Colorado  river  \7hich  soon 
assumed  such  proportions  as  to  almost  paralyze  all  advancement.     At  the 
present  time  the  Valley  is  advertised  mors  widely  than  ever  Lefore  in  its 
history  and  far  more  favorable.       The  confidence  now  existing  everywhere 
as  to   the  Irrige.tion  Compary»s  ability  to  satisfy  all  demands  upon  it 
is  tut   of  all  proportion  to  the  real   facts,   and  there  is  now  every 
evidence  of  a  boom  which  will  be  almost  without  a  parallel  in  the  history 
of  the  country.     This  in  itself  would  indicate  an  opportunity  for  vexy 
rjipidly  disposing  of  tho  additional  water  stock  which  will  be  made 
availabb  by  tho  extnesions  contemplated,  but  on  the  other  hand  a  boOTi 
in  itself  has  many  elements  of  danger  by  over-reaching.       Some  of  the 
prices  in  the  Valley  v/hich  are  being  asked  today  are  a  little  less  than 
unreasonable  and  as  some  of  the  ""uixotic  belief  in  the  existing  management's 
unlimited  altruism  is  dispelled  there  will  probably  be  a  re-actlon  which  will 
very  likely  result   in  a  disagreeable  and  unfortunate  agitation  expecially 
if  steps  should  bo  taken  to  increase  the  inccme  of  the  company  by  means 
of  a  raise  in  water  rate,   and  it  may  therefore  be  a  few  years  before 
all  of  the  additional  securitfes  can  be  disposed  of  without  sacrifice. 
It  seems  perfectly  safe,  however,   to  estimate  that  this   could  be  done 
within  the  next  four  years, 

-7- 


It  must  be  remembered  however  that  not  to  exceed  thirty 
to  thirty-five  ^qt  cent  of  the  total  sun  would  be  in  cash  v/ithln 
such  a  period,  but  the  remainder  \«)uld  be  rex)re8ented  by  thorou^ly 
good  paper. 

A,     Land,       In  Mexico  the  land  must  be  sold  with  r3ght  to 
buy  water  included  and  of  the  80,000  acres  of  land  still  owned  by 
the  iviexioari   company  only  50,000  acres  lie  so  that   it  may  bo  irrigated. 
The  land  itself  has  been  talcen  into  account  at  $1,00  per  acre  and 
by  colonization  and  judicious  management  the  50,000acre8  of  irrigabl'- 
land  could  be  sold   for  §20,00  per  acre  v/ith  a  cost  of  about  |4.00  per 
acre  for  distributing  system  necessary,   leaving  $15.00  per  acre  as 
the  additional  values  made  available  by  extensions  in  Mexico. 

2»     ^*^'ater  ftock«     There  aro  now  outstanding  water  stock  for 
217,000  acres  of  land  in  the  United  States  aiii  the  proposed  extensions 
would  enable  an  additional  120,000  acres  to  bo  put  under  canals. 
Roughly  epeaking  the  distributing  systems  for  sucih  lands  which  are  not 
ind  uded  in  the  estimate   for  the  extensions  of  main  canals  will  cost 
t5.00  per  acre.     Some  of  the  120,000  acres  of  land  will  bo  rou^  and 
expensive  to  reclaim  but  the  water  stock  would  be  sold  so  that  the 
receipts  therefrom  would  be  equivalent  to    |25.00  per  share  or  per  acre 
for  100,000  acres.     Deducting  $5.00  per  acrcsas  the  cost  of  distribut- 
ing 8;yBtGms  there  leaves  a  n'et  amount  of  100,000  acres  at  ^20.00  per 
share  or  #2,000,000.00. 


5.      OPERATION   AND   llAI MBH ANCE  CP   COMPLETED  SYSTEM. 

A.  Levees  and  River  Protection  $100,000.00 

B.  Canal s- 

1.  In  I»:exico 

2.  In  U.   S.  100,000.00 

C.  Buildings  1,250.00 

D.  Legal  t-iepense  9,000.00 

E.  Insurance,  Taxes,  etc.                                                                       6.000.00 

I     216,250.00 

A.     Levees  and  River  T^teotlon.     Like  all  Delta  rivers  the 
Colorado   is  now  upon  the  highest  line  of  a  ridge  vAilch  slopes  both 
ways  from  the  banks.     Prior  to  last  June  sono  overflow  water  reached 
the  ?alton  Sea,  but  in  no  large  quantities  because  of  the  tendency 
to  deposit  silt  vexy  soon  after  leavin/r  the  river  proper,  thus  build- 
ing the  banks  higher  in  proporticn  ar  the  river  bottom  was  raised. 
For  that  reason  it  was  a  matttir  of  little  importance  whero  the  river  channel 
might  be  changed  by  accidental  means,  and  levees  would  be  of  no  real 
value  except  to  keep  the  lard  relatively  caose  to  the  rivor  from  being 
ovorflov/ed,  and  this  was  undesirable  because  the  overffiow  irrigated  after 
a  fashion  a  veiy  large  tract  of  land  particularly  the  Southern  portion 
of  that  belongirig  to  the  l'ie::ican   Cattle  Company. 

On  account  of  the  large  channel  which  the  break  has  cut 
extending  practically  from  within  three-fourths  of  a  mile  of  the  river 
banks  proper  to  tho  Salton  Sea,  this  has  entirely  changed  the  situation, 
and  if  the  river  at  the  Lower  Heading  should  begin  cutting  "estward,   it 
might  within  a  few  hours  eat  away  a  oonsMerahle  portion  of  the  diversion 
work,  and  the  overflow  water  reach  this   canon  resulting  in  another 
break  equally  as  difficult  to  handle  as  the  one  just  closed.     Only  a  few 
miles  East  of  the  Colorado  Rivor  extending  from  Yuma  Southward  and  rou£^ly 


speaking  paralleling  it   is  the  I.Jesa  line  whereas  on  the  'Vest 
beginning  at  the  Lower  Heading  and  extending  entirely  to  the 
Grult  is  a  broad  plain  sloping  rapidly   from  the  river.     These 
conditions,  as  is  well  kno'wi  to  Geologists,  mean  that  the  river 
will  ccnstantly  tend  to  shift  to  the     eot  going  farther  and 
farther  from  the  Eastern  abeyraent.     The  in^rovenent  work  on 
both  Bides  of  the  river  consists  of  levees  close  to  the  bank 
proper  and  will,   if  maintained  effectually  prevent  the  shifting 
of  the  bed  from  its  present  location*       I  am  of  the  opinion  that 
the  le^reo  system  cannot   long  be  maintained  satisfactorily  except 
by  an  elaborate  and  expensive  plan  of  rivor  protection  using  the 
methods  successfully  employed  on  the  :'issourl  rivor  consisting, 
generally  speaking  in  short  spur  dams. 

If  scmething  of  this  kind  is  not  done  it   is   inevitable 
that  the  existing  levees  must  be  changed  fraT.  time  to  time  and  a 
chance  taken  of  an  occasional  break  which  will  prove  expensive  to 
close.       To  decide  upon  the  best  method  of  handling  the  situation 
and  estimate  its  cost  would  require  the  obtaining  of  a  great  deal 
of  data,   careful  consideration,  and  probably  trying  several  experi- 
ments before  the  most  satisfactory  method  of  procedure  could  be 
detemined,  therefore  only  a  rough  estimate,   little  better  than  a 
guess,   could  be  made  by  anyone  at  this  time.     The  situation  is 
not  grave  enough  to  warrant  the  heroic  measures  which  would  un- 
doubtedly prove  efficacious,  but  which  would  cost  between  $1,500,000 
and  .f  2,000,000.00 —  especially  immediately.      At  the  saT.e  time  some- 
thing must  be  done  and  within  the  next  ten  years  the  average  annual 
expenditure  which  will  be  required  to  insure  against  disaster  or  to 
repair  the  damage  if  another  break  should  occur  may  be  taken  at 
tlOO,OCO  a  year  during  that  period.      In  considering  the  matter  it 
must  be  borne  in  m.lnd  that  unless  the  present  levee  is  extended 
down  the  bank  of  the  Colorado  River  about  twenty  miles  to  the 
hi^  land  below  the  source  of  the  Pescadores  rivor,   or  a  levee  is 
built  from  the  end  of  the  present  system  along  the  river  bank  in 
a  '"esterly  direction  about  twenty  m.iles  to  the   Cocopa  I'ountains, 
which  foTm  the  western  abeyment  of  the  rivor.   Just  south  of 
Calexico,    the  overflow  water  will  each  year  get  into  the  Salton 
Sea  to  a  more  or  less  extent. 

S»     Canals.     The  Maintenance  and  Operation  of  the  ccmploted 
system  exclusive  of  Rivor  and  Levee  Protection  work,  but   Including 
Administration  will  bo  about  1100,000.00.     This  figure  is  based 
upon  good  construction  of  the  main  system  which  must  be  maintained 
by  the  California  Development  Company  and  the  I^exioan  Company,  and 
contemplates  reinforced  concrete  and  steel  gates  throughout,  and 
further  contemplates  no  expenses  of  management  other  than  the 
routine  ones  which  would  be  required  for  a  satisfactory  system  v/ith 
all  existing  tangles  and  difficulties  straightened  out.  ' 

^*     Buildings.     The  maintenance  of  the  buildings  v/hlch  must 
be  erected  at  Calexico  and  :.:exicali  and  at  various  points  on  the 
completed  systen  for  employees  and  officers  is  estimated  on  the  basis 
of  5%  per  annum  and  should  not  amount  to  more  than  $1,250. 

E.     Legal  Expenses.     Extraordinaiy  legal  expenses  are 
certain  for  the  next  year  or  two  because  of  veiy   important  suits  which 
have  already  been   filed,  particularly  those  against   Chaffee,   et  al, 
and  against   Imperial  '"ater  Company  Ko.   5.     At  all  times  claims  must 
be  expected  and  difficulties  encountered  with  the  various  mutual 

-9- 


water  companieB,   bocause  their  management   cannot  be  expected  to  te 
business -like.     Furthermore  a  decisive  legal  controversy  with  the 
United  Ttates  Heclnmation  Service  to  definitely  settle  the  rlg^t  to 
take  enough  water  to   Irrigate  the  500,000  acres  of  land  referred  to, 
eeeiTB  inevitable  sooner  or  later.     Under  these  conditions  a;  "expense 
of  at  least  $9,000.0^  a  year  should  be  expected. 

F.      Insurance.  Taxes,   etc.     This   item  Is  problematical 
depending  largely  upon  the  appraisement  which  is  to  be  expected  — 
probably  $6,000.00  per  year  is  a  fair  figure  for  the  next   five  years. 


6. 

INCOME. 

A. 

Rents 

B. 

Pov/er  Rentals 

C. 

Water  Rentals 

11,200.00 
4,000.00 
300.000.00  $305,200.00 

^'     Rents.     The  rents  on  the  Company's  houses  built  to 
accommodate  company  officers  and  employees  will  average  vl»200.00 
per  annum. 

B.  Power  Rentals.     There  Is  a  possibility  of  considerable 
power  rental   in  the  Valley  i.rovidlng  the  injunction  restraining  the 
Company  from  allowing  any  water  to  reach  the  Salt  on  Sea  can  bo  removed. 
Doubtless  the  best  v/ay  to   do  this  Is  to  obtain  control  of  the  Salton 

Basin,  which  veiy   likely  can  be  done  as  a  part  of  the  settlemsnt  of 
danage  claims  with  the  Salton  Salt  "orks.     The  pester  required  in  the 
Valley  will  be  quite  considerable  and  there  is  a  possiUlity  that  water 
rentals  for  power  purposes  might  reach  ^15,000.00  within  the  next  five 
years.     At  the  present  time  it  araraounts  to  v,2,000.C0  and  for  the  ensueft 
ing  five  years  it  will  probably  average  (-4,000.00. 

C.  ':.'ater  Rentals.     Water  rentals  for  the  six  months  ending 
June  30th,   1906  were  at    the  rate  of  f 120, COO. 00  per  annum..     The 
acBrage  in  cultivation  is   approximately  100,000.     Within  five  years 
300,000  acres  should  bo  under  cultivation  in  the  United  States  and 
probably  150,000  acres  -possibly  200,000  in  Kexico.       The  use  of 
water  will  probably  increase  in  direct  ratio  with  the  area  under 
cultivation,  although  this   Is  very  doubtful.     The  rate  at  which  the 
water  rentals  will  increase   from  the  present  time  until  the  entire 
450,000  or  500,000  acres  will  be  under  cultivation  is  problematlcal- 
probably  within  the  next  year  the  rate  of  increase  will  be  much  larger 
than  later  on  -but    it  depends  upon  a  great  many  factors  and  it  would 
seem  wise  not  to  assume  the  average  annual  income   from  water  rentals 
for  the  next  five  years  to  be  greater  than  |!300,000.  per  year. 

J'any  figures  have  been  made  on  the  basis  of  four  acre 
feet  of  waterpor  year  for  each  and  eve  y  acre  under  the  canals 
and  assuming  that  ultimately  500, COO  acres  will  be  irrigated  in 
the  Valley  the  water   rentals  would  amount   to  ^1,000,000.00  per  yeaur. 
In  the  light  of  experiaace  here  it  would  seem  that  two  and  a  half 
acre  feet  per  year  for  all  land  undercanals  is  about  the  proper 
figure,   and  the  price  per  acre  foot   is  not  fifty  cents,  but  it 
is  fifty  cents  less  ten,   or  more,  per  cent  allov/ance  for  seepage 
and  evaporation,  amaking  the  real  price  of  water  per  acre  foot  less 
than  forty-five  cents.     Hence  it  would  seem  that  when  the  entire 
Vallq^  is   fully  developed  the  water  rentals  whould  amoiant  to  frcm 

-10- 


$550,000.00  to  $600,000.00  per  annum,  providing  the  eompany  can 
supply  the  demand  for  water  and   that  the  present  water  rates 
contjnue. 

It  has  been  tacitly  assumed  that  the  Colorado  river  carries 
enough  water  to  irrigate  2,000,000.   acrep   of  land;  but  investigation 
shows  this  is  a  serious  overestimate  due  very  largely  to  the  fact  that 
the  total  annual  discharges  of  the  river  at  Yuma  have  always  been 
taiken,  thus  countinf^  the  flood  waters,  all  of  which,   of  course,   could 
not  be  used.        It   is  true  that  the  average  annual  discharge  of  the 
Colorado  River  at  Yuraa  is  0,000,000  acre  feet,   and  assuming  four  feet 
of  v/ater  used  per  acre  per  year  the  total  discbarge  of  the  river 
would  obvirusly  suffice  to   irrigate  2,000,000  acres.       Unfortunately  the 
total  annual  discharge  of  the  river  is  not  available  nor  any  large 
fraction  thereof,   for  while   it   is  theoretically  possible  to 
conserve  the  flood  waters  of  the  Colorado  Hiver  and  render  than 
available  for  use  during  low  v^-ater  period,  the  flood  discharges  so 
greatly  exceed  the  capacity  of  any  feasible  storage  system  that 
has  ever  been  omsidered  or  Is  likely  to  be  carried  out  that   it  would 
be  little  lese  than  folly  to  regard  as  available  for  irrigation  anythinf?; 
more  than  the  formal   flow  of  the  river.        The  Reclamation  Service 
Engineers  told  mo  that  they  are  considering  the  construction  of 
a  gigantic  chain  of  reservoirs  on  the  water  sheds  of  the  Colorado 
River  in  Colorado  Involving  an  expenditure  of  between  t'12,000,000.00 
and  $16,000,000.00  but  they  find  several  serious  obstacles  to  ovoreome 
aside  from  obtaining  the  necessary  amount  of  money  and  it   is  doubtful 
whether  any  of  such  syster,  will  be  constructed  for  many  years. 

Reliable  gaugings  of  the     Cclorado  river  discharge  at  Yuma 
were  not  taken  before  1902,   so  that   it   is  impossible  to  say  just 
what  the  discharge  is  during  the  lowest  low  water  period.      It   is 
probable,  but  by  no  moans  certain  that  the  lowest  discharges   for  a 
period  of  six  months  will  not   fall  below  that  measured  from  the  first 
of  September  1902  to  the  first  of  Inarch,   1903,  when  the  average 
monthly  discharge  waB  as  follows: 


September,   1902 

227,246, 

acre 

feet. 

October          " 

264,335 

f» 

tt 

November         " 

249,144 

ft 

ft 

December        " 

332,771 

f» 

ft 

January       1903 

189,939 

tf 

r« 

February        " 

187.271 

ft 

H 

Total 

1,450,706 

ft 

ft 

Average  during  the  period -241, 780  Acre  Feet.     Assuming  that 
permission  could  be  obtained  to  draw  off  every  drop  of  water  from  the 
river  during  this  entire  period,  that  there  could  be  delivered  to  the 
irrigated  lands,  seventy-five  j>er  cent  of  all  waters  abstracted  (which  by 
the  way  contenplatos  a  very  high  efficiency  of  canals),  and  that  1.25 
feet  of  water  would  suffice  during  such  time,  there  would  be  1,450,700 
acre  feet  divided  by  1.25  or  1,160,600  acres  as  the  outside  limit  of 
land  which  could  be  irrigated  by  the  waters  of  the  Colorado.        The 
Yuraa  Project  of  the  United  States  Reclr.raation  Service  contemplates 
irrigatlne  97,000  acres  and  it  has  two  other  projects  between  Yuraa 
and  the  Needles  each  consisting  of  200,000  acres  of  a  grand  total 
of  500,000  acres  which  It  contemplates  rasLaiming  in  Arizona.      It 
would  seem  evident -therefore  that  the  estimate  of  317,000  acres   in 

-11- 


America  and  200,000  acres  in  Mexico,  which  have  been  used  f6r  the 
basis  of  arriving  at  the  probable  ultiimte  income  of  the  California 
Development   Company  is  quite  as  largo  as   is  safe. 

It  should  be  furthermore  pointed  out  that  a  great  deal 
remains  to  be  done  to  securo  to  the  California  Development  Company 
unquestioned  right  to  take  this  amount  of  water.        It  will  undoubted- 
ly be  necessaiy  to  arrange  a  treaty  with  Mexico  before  all  of  the 
water  can  bo  taken  from  the  Colorado  River  durinf^  a  period  of  mix 
months,  and   so  absolutely  destroying  all  navigation  on  the  river. 
Vlien  such  a  treaty  is  made  it   is  hi^ly  probable  that  I-'exico  will 
insist  on  a  lar£,er  amount   of  water  to  1  e  used  on  2<!exican  land  than 
is  sufficient  for  the  200,000  acres  on  tho  ^Vest  side  off  the  river, 
because  thore  aro  more  than  500,000  acres  comprised  in  the  two  grants 
to  La  Sociedad  de  Riego  y  Terrenes  de  la  Baja  California,   and  to 
the  lAexican  Cattle  Co.  the  Times  Syndicate-  while  there  is  a  voiy 
large  body  of  excellent  land  on  the  i:a6t  side  of  the  river  South  of 
Arixona.     Kow  when  such  a  treaty  may  be  arranged  the  United  States 
Reclamation  Service  v/ill  probably  have  sufficient  influence  to 
effectually  protect  the  Yuma  Project  and  the  other  two  proposed 
projects  further  up  the  river,   for  on  the  one  hand  the  concession 
to  the  I'exican   Company  to  take  the  water  of  the  Colojrado  River 
belonging  to  ?;:exioo  to  the  extent  of  10,000  second  feet  is  un- 
satisfactory in  that   it   is   conditional  upon  not   interferring  with 
navigation  while  on  the  other  the  United  States  Reclamation 
Service  insist  that  the  California  Developraait  Company  filings   in  the 
United  States  are  valid  only  to  the  extent  of  the  actual  use  of 
water.       The  "!«*iole  subject   is  more  a  iQgal  than  an  engineering  matter 
in  8  0  far  as   the  right  of  the  California  Development  Company  to   take 
water  from  the   Colorado     River  is   concerned  and  it  is  not  desired 
to  do  more  than  call  attention  to  the  fact  that  the  entire 
subject  must  be  carefully  considered  in  connection  *ith  the  probable 
yearly  income  of  the  corapai^y  at   the  end  of  say,    five  years. . 

The  possibility  of  raising  the  water  rents  has  been  hinted 
and  it   i!^  well  to  consider  this  point  especially.      Contracts  are 
outstanding  with  the  Imperial     V/ator  Companies  Kos.   1,  4,   5,   6,   7, 
and  8  to  deliver  water  at  fifty  cents  per  acre  foot  for  all  water 
actually  available  to  their  stock  holders,   and  containing  clauses  call- 
ing for  a  dotennination  of  tho  losses  due  to  seepage  and  evaporation 
which  will  undoubtedly  range  from  a  minimum  of  ten  per  cent  to   in 
some  cases  as  high  as  t^senty  five  per  cent  of  the  water  delivered 
to  them,  from  the  main  canals  of  the  Califonaia  Development  Compaiy. 

I  do  not  think  there  i3  any  reasonable  probability  of 
getting  the  various  water  companies  to  voluntarily  agree  to  any 
change  either  in  the  rate  of  water  or  the  allowance  they  have 
obtained  for  seepage  and  evaporation.       The  only  possible  way,   then 
to   increase  the  water  rentals  would  be  to  abrogate   all  of  these 
contracts.     Generally  speaking,   the  California  Development   Company 
has  no  legal  basis  to  sue  upon,  having  grievously  fAiled  ^^  comply- 
ing with  its  side  of  these  contracts  while  none  of  the  various  water 
compaiies  have  been  derelict  to  any  ei'tent  with  the  possible  exception 
of  Imperial  "ater  Company.   Ko.   5. 


-12- 


It  Is  posBiblo  however,  that  such  contractB  could  be  set  aside 
as  illegal  or  illegally  cntored  into,  the  most  proraieine  opportunity 
being  that  La  Sociedad  de  Hieeo  y  Terrenos  de  la  Ba^a  California  is  a 
i'iexican  Compa3qy  and  has  entered  into  these  tri-party  ccntracts  with  the 
California  Development  Company  and  the  respective  mutual  water  con^anies, 
none  of  such  companies  having:  ever  been  protocolized  in  I-?oxlco  and  hence 
have  no  legal  standing  there.       Just  what  value  attached  to  this  point 
is  problematical,  but  there  is  another  thing  abcut  these  contracts  whicJi 
is  even  more  important  and  that  is  that  tl:ie  Mexican  law  x-nakes  provision 
requiring  contracts  by  I^iexican  Companies  top'^rotocolized  and  to  bear 
Govemmetit  staiujjs  of  a,  value  in  proportion  totho  cnount   involved  in 
the  contract,  and  neitjher  was  done  in  the  case  of  any  of  the  contracts, 
BO  that   it  is  highly  probable  that  all  those  contracts  are  absolutely 
void  according  to  rCexican  law.       Should  this  not  bo  true  there  is 
another  possibility  and  that  is  allowing  of  the  rescission  of  the 
fundamental  concer>sion  and  the  securing  of  a  new  concession  which 
would  be  free  from  all  entanglemaits  along  thete  lines,  and  give  a 
free  hand  to  the  adjustment  of  tlae  .tariff  in  proportion  to  what  the 
traffic  will  bear. 


7.       GROSS  PROFIT 

If  the  money  for  all  Bettorments  and  Sxtensions  were  to 
be  obtained  by  the  sale  of  such  assets  ar>  arc  not  necessary  to 
conduct  the  business  of  the  Compaiy  and  by  the  sale  of  bonds,  then 
the  probable  annual  income  during  the  next  five  years,   less  the 
probable  annual  cost  of  Operatinn  and  I'laintenance  would  bo  the 
probable  annual  amount  available  for  fixed  charges  and  dividends  on 
stock.     The  general  reorganization  of  the  Company  will  probably  not 
be  made  along  thes<3  lines  so  that  the  sura  so  obtained  is  nothing 
more  or  less  than  Gross  Profits. 

Adopting  the  figure  of    $600,000.00  as  the  ultimate  income 
of  the  Gompaiiy  v-'hon  its  business  is  fully  developed  and  assuming 
the  yearly  cost  of  Operation  and  iTaintenance  of  the  Completed  System 
to  average  ^216,250.00  the  Gross  Profits  would  amount  oto  $383, 750. OC. 
Too  great  stress  cannot  be  laid  upon  the  fact  that  this  figure  is 
arrived  at  and  based  upon  what  is  no  more  and  no  less  than  conjecture, 


Calexico,   Califomia,  November  2l8t,   1906. 


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',4    i"A: 


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